By VIKAS BAJAJ / February 16, 2010Copyright 2010 The New York Times Company

HAMBANTOTA, Sri Lanka — For years, ships from other countries, laden with oil, machinery, clothes and cargo, sped past this small town near India as part of the world’s brisk trade with China.

Now, China is investing millions to turn this fishing hamlet into a booming new port, furthering an ambitious trading strategy in South Asia that is reshaping the region and forcing India to rethink relations with its neighbors.

As trade in the region grows more lucrative, China has been developing port facilities in Pakistan, Bangladesh and Myanmar, and it is planning to build railroad lines in Nepal. These projects, analysts say, are part of a concerted effort by Chinese leaders and companies to open and expand markets for their goods and services in a part of Asia that has lagged behind the rest of the continent in trade and economic development.

But these initiatives are irking India, whose government worries that China is expanding its sphere of regional influence by surrounding India with a “string of pearls” that could eventually undermine India’s pre-eminence and potentially rise to an economic and security threat.

“There is a method in the madness in terms of where they are locating their ports and staging points,” Kanwal Sibal, a former Indian foreign secretary who is now a member of the government’s National Security Advisory Board, said of China. “This kind of effort is aimed at counterbalancing and undermining India’s natural influence in these areas.”

India and China, the world’s two fastest-growing economies, have a history of tense relations. They share a contested Himalayan border over which they fought a war in 1962. India has given shelter to the Dalai Lama, who fled Tibet as China exerted control over it. And China has close military ties with Pakistan, with which India has fought three wars.

But the two countries also do an increasingly booming business with each other. China recently became India’s largest trading partner, and both have worked together to advance similar positions in global trade and climate change negotiations.

Chinese officials deny ulterior motives for their projects in South Asia. And top Indian leaders have tried to play down talk of a rivalry with China, saying there is enough room in the world for both economies to rise simultaneously.

As recently as the 1990s, China’s and India’s trade with four South Asian nations — Sri Lanka, Bangladesh, Nepal and Pakistan — was roughly equal. But over the last decade, China has outpaced India in deepening ties.

For China, these countries provide both new markets and alternative routes to the Indian Ocean, which its ships now reach through a narrow channel between Indonesia and Malaysia known as the Strait of Malacca. India, for its part, needs to improve economic ties with its neighbors to broaden its growth and to help foster peace in the region. Some of the shift in trade toward China comes from heightened tensions between India and Pakistan, which has hampered trade between the two countries. But China has also made inroads in nations that have been more friendly with India, including Sri Lanka, Bangladesh and Nepal.

Moreover, protectionist sentiments have marred India’s relationships with its neighbors. South Asia has a free-trade agreement, but countries that are part of the pact get few benefits, economists say, because India and its neighbors refuse to lower tariffs on many goods and services to protect their own businesses. By contrast, the countries of Southeast Asia have minimal or no duties on most goods and services that they import from one another.

India has had some success in establishing closer ties with Sri Lanka, with which it has a strong bilateral trade agreement. But China has become a partner of choice for big projects here like the Hambantota port. China’s Export-Import Bank is financing 85 percent of the cost of the $1 billion project, and China Harbour Engineering, which is part of a state-owned company, is building it. Similar arrangements have been struck for an international airport being built nearby.

Sri Lankan officials want to turn Hambantota, which was devastated by the 2004 tsunami and is the home constituency for President Mahinda Rajapaksa, into the second-largest urban area in the country after the capital, Colombo. (It is the ninth-biggest today.) The government is also building a convention center, a government complex and a cricket stadium.

Sri Lanka needs foreign assistance to make those dreams a reality, because the government’s finances are stretched by a large debt it accumulated in paying for a 25-year civil war that ended in May. In 2009, the country borrowed $2.6 billion from the International Monetary Fund.

Mr. Rajapaksa has said he offered the Hambantota port project first to India, but officials there turned it down. In an interview, Jaliya Wickramasuriya, Sri Lanka’s ambassador to the United States, said the country looked for investors in America and around the world, but China offered the best terms. “We don’t have favorites,” he said.

Still, Sri Lankan officials have refused to disclose information that would allow analysts to compare China’s proposals with those submitted by other bidders. The country has also kept private details about other projects that are being financed and built by China, including a power plant, an arts center and a special economic zone.

The Sunday Times, a Sri Lankan newspaper, recently estimated that China was involved in projects totaling $6 billion — more than any other country, including India and Japan, which have historically been big donors and investors in Sri Lanka.

Harsha de Silva, a prominent economist in Colombo and an adviser to the country’s main opposition party, said the Sri Lankan government appeared to prefer awarding projects to China because it did not impose “conditions for reform, transparency and competitive bidding” that would be part of contracts with countries like India and the United States or organizations like the World Bank.

Other analysts say China is winning big projects here and elsewhere in the region because its companies offer lower costs. Chinese companies are also competitive because they have acquired a lot of expertise in building large infrastructure projects in China, said Jerry Lou, Morgan Stanley’s China strategist.

In 10 years, Chinese companies have become the biggest suppliers to ports of cranes used to move shipping containers, displacing South Korean and Japanese companies, he said. “They are running at very high efficiency and at the lowest costs,” Mr. Lou said. “China is a game-changer, rather than a new player in the world’s construction industry.”

India is starting to respond to China’s growing influence by becoming more aggressive in courting trade partners. India recently signed a free-trade deal with the Association of Southeast Asian Nations and South Korea. Officials have even begun talking about signing a trade deal with China to bolster exports.

India’s chief trade negotiator, D. K. Mittal, acknowledged that the country’s economic ties with its neighbors were not as strong as they should be and blamed political distrust between the countries. But he said leaders were now determined to improve economic relations, something he said was highlighted in a recent agreement with Bangladesh.

In that deal, India agreed to sell electricity to Bangladesh, provide it with a $1 billion line of credit for infrastructure projects and reduce tariffs on imports. Bangladesh agreed to allow Indian ships to use a port that is being redeveloped by China. “The political leaders have to rise above and say, ‘I want this to happen,’ ” Mr. Mittal said in an interview. “That’s what the leaders are realizing.”

Copyright 2010 The New York Times Company

Author:

Saman [ Sun Sep 23, 2012 9:00 pm ]

Post subject:

Why China needs the Hambantota port

Why China needs the Hambantota port

September 22, 2012, 5:38 pm BY Ravi Laddwahetty

During Sri Lankan career diplomat and former SAARC Secretary General Nihal Rodrigo’s tenure as Ambassador to the People’s Republic of China, when the proposals for the expansion and modernization of the port of Hambantota were being seriously developed , he had informally asked the views of a member of the Chinese Communist Party (CPC) about the speculation of many think tanks in the West about the so-called Chinese "string of pearls" being setup across the Indian Ocean region.

Rodrigo specifically asked whether Hambantota, in the South of Lanka, was going to be part of that string. The theory about China’s security necklace across the Indian Ocean revolves round the sea ports of Gwadar in Pakistan, Chittagong in Bangladesh, Sitwe in Myanmar (formerly Burma) and, more recently, with much media focus, on Hambantota. These ports have been linked and projected as a necklace of containment round India by many particularly in the Western strategic community.

The deep-water port at Gwadar, Pakistan, represents an early Chinese project in the Arabian Sea. Along with Beijing’s onshore and offshore projects in Myanmar, Gwadar was said to signify a growing Chinese footprint on both the oceanic flanks of peninsula India. Adding to this projected scenario was China’s agreement to build a port at Hambantota in Sri Lanka, its development aid to the Bangladeshi port of Chittagong and its reported interest in a strategic anchor in the Maldives. This was seen, by security think-tanks and observers as underscoring an emerging Chinese challenge to India’s traditional position in the Indian Ocean region.

The informal conversation between Rodrigo and the member of the Chinese Communist Party resulted in the Chinese laughing off the speculation. He had stated that the Chinese do not believe in military bases in the Indian Ocean, or for that matter in any part of the world, unlike the Americans who have set up bases across the world. The Chinese believe that this concept causes enormous difficulties whereever US troops have been based, away from their homeland. In terms of budgetary expenses to maintain troops in far flung bases, some statistics had apparently revealed that it costs over half a million US dollars per trooper annually to maintain them in those bases. It has been also reported that the troops in the bases were also under constant psychological stress about being attacked, particularly in Okinawa in Japan where even North Koreans could have fired a missile targeting the base which could also hit local civilian areas.

Facilities in friendly countries for transit

Why China needs the Hambantota port and other ports in the Indian Ocean area was because it benefits from non-military facilities in friendly countries for the vital peaceful transit of its extensive exports and imports. The CPC official had explained that this does not imperil local people. This, he had said, is particularly because of the fact that China does not site any troop bases in any of the Indian Ocean ports. In addition to its oil supplies from the Gulf, China also needs ports of call in the Indian Ocean for its exports especially to Africa.

Not all the export cargo aboard the ships that leave China are meant for one single destination alone. Midway ports are important as break bulk cargo points. The fact that Hambantota has extensive acreage for storage of trans-shipment goods well over and above the limited acreage in Colombo and Galle is also a reason why they sought such facilities in Hambantota. The southern port, a few miles north of the most traversed sea routes in the Indian Ocean was thus, for the Chinese, a vital location for refueling, supply replenishment, break bulk cargo and multi-country transshipment connectivity. It is a fact that even most of Indian exports/imports undergo trans-shipment through Sri Lanka.

Hambantota was being talked of as a possible destination also to break ships when they have to be sold for scrap, a process which is now happening in Chittagong. Sri Lanka has never agreed to this. So, the rationale for China developing the Hambantota port was not without reason. It was for reasons of convenient connectivity, without having to maintain expensive bases with deployment of troop contingents. Hambantota has space where the Chinese could, if needed, have extensive warehouses for storage and break bulk handling which is now becoming more difficult in Singapore and Thailand.

Security issues

Then come the issues of security. China could use Hambantota as a means of detecting and monitoring Somali pirates in the Indian Ocean. There was recently a major issue in the Indian Ocean where an Italian ship had sighted an Indian fishing vessel and shot it, thinking that it carried Somali pirates. Two of the Indian crew members were killed. China does not need to station troops here but its satellites could monitor security threats from pirates. Somali pirates attack ships for looting the cargo as well as for holding crews/passengers to ransom.

Now the western governments are monitoring the eastern coasts of Africa when they were about to sail through the Suez Canal. That passage is relatively more secure now, and the focus is now heavily on the Indian Ocean where there are other dangers of maritime security such as trafficking of people, gun-running, drug-smuggling and related crimes.